1) Your company is opening som

1) Your company is opening some subsidiaries in several countries. For the subsidiary in each country, discuss the advantages of getting additional with financing debt or equity, internally or externally, and by the parent or subsidiary. Assume your marginal corporate tax rate is 21% in the US.

a) The branch office in Sweden where the marginal tax rate is 35%.

b) The branch office in Hong Kong where the marginal tax rate is 10%.

c) Now assume that UIP holds for Korea, where the interest rate you would

borrow at is 20%, and the currency is expected to depreciate by 10%. You

can borrow at 10% in US dollars. Should the parent or the subsidiary do

the borrowing?

d) Now assume that for Zimbabwe, UIP does not hold, interest rates are 25%, and the currency is expected to depreciate 10%. Discuss the advantages of different financing options now.

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